What Is Par Value? | The Motley Fool (2024)

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What Is Par Value? | The Motley Fool? ›

Par value is the face value of a bond or a share of a stock. Unlike the market price, the par value of a financial instrument is a stable price determined at the time of issuance. While both stocks and bonds can have par values, they're much more important for bond investors.

Par value is the face value of a bond and determines a bond or fixed-income instrument's maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par, depending on factors such as the level of interest rates and its credit status.

"Par value," also called face value or nominal value, is the lowest legal price for which a corporation may sell its shares. It has nothing to do with how much a corporation's shares are actually worth or are sold for.

A par value for a stock is its per-share value assigned by the company that issues it and is often set at a very low amount such as one cent. A no-par stock is issued without any designated minimum value. Neither form has any relevance for the stock's actual value in the markets.

Par value in most states, including Delaware, is a relic of their corporate statutes that typically comes into play in calculating franchise taxes—it is the minimum issue price for a share of stock. A typical par value is $0.00001.

If the value of the stocks ever drop below the par value, the corporation becomes liable to the shareholders for the price drop. No-par stocks completely avoid this whole process by having no minimum price or par value at all for the stocks.

Most bonds have a par value of $100 or $1,000, but businesses and governments can issue bonds at any denomination they choose. For stocks, par value is stated on the corporate charter. The par value for stocks is the lowest price at which the company will sell its shares, and it's typically set very low.

Issuing a no-par-value stock prevents the stocks from being misquoted in value. The stocks' value fluctuates according to market conditions. Since the stock price fluctuates with the market and differs remarkably from the par value, no-par-value stocks are more attractive to stock issuers.

The par value is typically set very low to avoid legal issues because if shares are sold for less than their par value, the investors could potentially hold the directors personally responsible for the difference. So, companies set the par value as low as possible to minimize this risk.

When it comes to equities, it's the market value that counts, not the par value. When most stocks are issued, they are given a par value. The par value assigned in modern times is a little sum, such as one penny. This eliminates any legal ramifications if the stock falls below its par value.

What is par value for dummies? ›

Par value is the face value of a bond or a share of stock. Par value is set by the issuer and remains fixed for the life of a security—unlike market value, which fluctuates as a stock or bond changes hands on the secondary market.

To make sure the legal capital isn't diluted, in most states, you're not legally allowed to sell shares for less than par value (at least not without contingent liability, which is a whole other story…). So, if your par value is $10 a share, you typically can't sell for any less than that.

Most shares issued today are indeed classified as no-par or low-par value stock. No-par value stock prices are determined by the amount that investors are willing to pay for the stocks on the open market. Par value has no relation to the market value of a stock.

Par value of a bond or fixed-income instrument is crucial since it influences the maturity value and the cash amount of coupon payments. The most common denomination of a bond is usually $1,000 par value (or to a lesser degree $100).

Simply stated, if the par value of a share is $1.00, then it cannot be issued to an investor for less than a dollar, paid for in funds or services. The par value of shares sets only a bottom limit for your business, but the board of directors may set the price of stock at any amount above par.

Par value is the lowest price the company can sell shares for. You'd only pay that little if you joined before the company raised any money. Exercise price is what you must pay to convert the options into stock, which in your case is $1.27 a share and $12,700 in total.

A financial instrument's par value is determined by the institution that issues it. The par values of stocks and bonds were printed on the faces of the shares when they were printed on paper. Market value, on the other hand, is the current price at which a financial instrument can be traded on the stock market.

A stated value is an amount assigned to a corporation's stock for internal accounting purposes when the stock has no par value. Like par value—which is the face value of a stock stated in the corporate charter—stated value is nominal, typically between $0.01 and $1.00. The stated value has no relation to market price.

While fair value is the price at which a willing buyer and a willing seller would agree to transact, par value relates to the price that the company has set for its shares. It is important to note that par value does not have any bearing on the fair value.